Insurance Shares Rally as Irene Estimates Fall

Loss estimates from Hurricane Irene continued to fall and ratings agencies said insurers would have no problem with claims, helping boost insurance industry shares Wednesday.

The relatively limited losses Irene appears to have caused to the private insurance industry means much of the burden is likely to fall on the federal government, since it writes almost all of the nation's flood insurance and flooding is Irene's overwhelming consequence.

Catastrophe modeling agency Eqecat said early Wednesday that it estimates U.S. insured losses from Irene of $1.5 billion to $2.8 billion. That is far less than the estimate from competitor AIR Worldwide, which suggested losses would range from $3 billion to $6 billion.

While it is not unusual for the two to differ in their estimates, the trend is clearly toward Irene costing the insurance industry much less than had been feared. In the days before Irene made landfall, many were predicting a $10 billion event or worse.

Given the relatively limited losses, ratings agency A.M. Best said the industry should have no problem absorbing the costs. While analysts have said losses could wipe out third-quarter earnings, it appears that will be the extent of the damage, leaving insurers' balance sheets intact.

"Despite the considerable catastrophe losses recorded through the first half of 2011, the overall (property insurance) industry remains adequately capitalized," A.M. Best said in a report. "Accordingly, Hurricane Irene is not a solvency event from an industrywide perspective."

Hurricane Irene - A CNBC Special Report

Fitch Ratings also said on Wednesday that losses would be "material but manageable" for insurers and that no ratings actions were expected.

If AIR Worldwide is correct, Irene would rank as one of the 10 costliest hurricanes in U.S. history. However, the lower end of Eqecat's estimate would put Irene well out of that range.

That said, it is still a blow to insurers, given estimates that they already suffered $27 billion in catastrophe losses in the first six months of the year — nearly 50 percent more than they lost in all of 2010.

By market share, the largest insurers in the storm-hit states of New York, New Jersey and North Carolina include State Farm, Allstate Corp , Liberty Mutual and Chubb Corp , according to A.M. Best.